## 2.8 Debt valuation issues

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**Canonical URL:** [2.8 Debt valuation issues](https://www.imf.org/-/media/files/data/statistics/gfsm/global-consultations/proposed-recommendations-gfsm-2014-update-28-debt-valuation-issues.pdf)

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### Background and key issues
- Valuation is central to government finance statistics; differences in valuation methods and terminology across manuals regarding nominal value create confusion for compilers.  
- Since GFSM 2014, public sector balance sheets and debt instruments have grown in size and complexity, including asset‑backed, index‑linked, and deep‑discount securities that are not fully addressed in existing guidance.  
- Lack of clear guidance on calculating accrued interest, the relationship between accounting measures (such as amortized cost) and nominal value, and the treatment of remaining/residual maturity exacerbates inconsistencies.  
- Continued reliance on cash‑basis recording in some contexts can obscure fiscal realities and create coverage gaps.  
- Clarifying valuation concepts—particularly nominal value—would improve consistency in balance‑sheet positions and the recording of related transactions and other economic flows.

### Issue A — Nominal value of debt liabilities
- Manuals share a common conceptual understanding of nominal value as the amount owed by the debtor, but differences in wording and emphasis across manuals have led to confusion in practice.  
- GFSM 2014 and PSDSG 2013 elaborate derivation of nominal value from value at creation plus subsequent economic flows; 2025 SNA further explicitly includes, within economic flows, holding gains and losses (excluding market price changes) and other volume changes.  
- Existing guidance contains necessary conceptual elements but lacks clarity and practical examples, making consistent application across diverse instruments difficult.

### Issue B — Interest accrual on debt securities
- Multiple valid methods exist for calculating accrued interest, especially for instruments with complex features (coupons at premium/discount, deep‑discount bonds, index‑linked securities); GFSM 2014 provides limited practical guidance on applying and interpreting these approaches.  
- Compilers often rely on debt‑management systems and other manuals (PSDSG 2013, HSS 2015), but the methodological basis and policy relevance of different interest measures (clean versus dirty price, effective interest rates, accrued interest over time, and resulting nominal values) are not clearly explained or linked within the GFS framework.  
- Inconsistent treatment between cash and accrual recording and limited guidance on foreign‑currency denominated debt and cross‑currency swaps further complicate accrual measurement and analytical use.

### Issue C — Asset‑backed securities (ABS)
- GFSM 2014 contains only brief coverage of ABS (definitions, limited securitization discussion). Related manuals (2025 SNA, HSS 2015) provide broader conceptual context but do not fully clarify valuation, eligible underlying assets or revenue streams, or treatment of special purpose vehicles (SPVs) for public‑sector ABS.  
- Limited data and the evolving nature of ABS hinder consistent valuation and compilation. Feedback to the global consultation suggested ABS are generally not material and additional guidance on ABS is therefore a low priority.

### Issue D — Remaining / residual maturity
- Definition of remaining (residual) maturity is harmonized across macroeconomic statistical manuals, but GFSM 2014 offers limited practical guidance for calculation, particularly for large volumes of debt with heterogeneous maturities.  
- Uncertainties include appropriate time units, whether short‑ and long‑term splits should be based on nominal values or individual payment streams, and treatment of instruments without fixed maturity dates.  
- Clarification is needed on which contractually scheduled payments to include in short‑term remaining maturity and on extending treatment beyond loans and securities.

### Proposed recommendations
- To address Issue A:
  - Align the updated GFSM definition of “nominal value” with that in the 2025 SNA text and provide principle‑based explanations of the relationship between nominal value and market value.
- To address Issue B:
  - Maintain the existing conceptual discussion in GFSM 2014 on accrued interest, but provide high‑level guidance on some of the different methods of calculating accrued interest and explain the differences between these methods.
- To address Issue C:
  - Align the updated GFSM with the 2025 SNA on guidance related to asset‑backed securities.
- To address Issue D:
  - Introduce clarifications in the updated GFSM on how to distinguish between short‑ and long‑term debts by remaining/residual maturity.

### Rationale for recommendations
- Improve consistency and clarity in government finance statistics by harmonizing with BPM7 and 2025 SNA, clarifying key concepts, and providing guidance to achieve greater operational clarity for compilers.

### Extracts of proposed text for GFSM update (selected)
- Proposed nominal value text (3.115 nominal value bullet):
  - "Nominal value is the amount that the debtor owes to the creditor at any given point in time. Nominal value is calculated as the value of the financial instrument at creation plus any subsequent economic flows, such as transactions (acquisition/repayment and/or accrued interest), holding gains and losses other than market price changes, and other volume changes."
  - "The following basic equation applies: market value = nominal value + cumulative revaluations arising from market price changes."
  - Note: "in some jurisdictions, nominal value may have alternative definitions, so it is important to ensure definitional consistency when compiling international statistics based on the GFSM."
- Interest accrual guidance (paragraphs 6.66 and related):
  - "In macroeconomic statistics, interest is calculated according to the debtor approach. According to this approach, interest is equal to the amounts the debtors will have to pay to their creditors over and above the repayments of the amounts advanced by the creditor."
  - "For fixed rate instruments, this approach assumes that interest expense is determined for the entire life of a financial instrument by the conditions set at inception of the instrument. Interest accrual is therefore determined by using the original yield to‑maturity."
  - "A single effective yield, established at the time of security issuance, is used to calculate the amount of accrued interest in each period to maturity. The accrual of interest should be calculated by the compound interest method."
  - "Accrued interest on debt securities should ideally be calculated using an effective interest approach and may be derived using either a clean‑price or dirty‑price method, depending on data availability."
  - Definitions: "The dirty price of a debt security is the market price, including accrued interest due to coupon. The clean price does not include accrued interest due to coupon."
- Premiums and discounts (paragraph 6.73):
  - Premiums are amortized over the life of the instrument and reduce the amount of interest accruing in each period; the premium is included in the nominal value throughout the life of the instrument.
  - On a cash basis, the full amount of premiums is recognized as a reduction in interest expense at issuance.
- Asset‑backed securities (paragraph 7.151):
  - ABS and collateralized debt obligations are arrangements where payments of interest and principal are backed by payments on specified assets or income streams; general government earmarking of future revenue to service debt securities is not recognized as securitization in macroeconomic statistical systems.
- Maturity and classification guidance (paragraphs 7.266–7.270):
  - Short‑term: payable on demand or with a maturity of one year or less; includes arrears and interest on arrears.
  - Long‑term: maturity of more than one year or no stated maturity (other than debt repayable on demand, which is short‑term).
  - Debt securities with no fixed contractual end date (such as perpetual securities) are classified as long‑term.
  - Remaining maturity is determined with reference to the final contractually scheduled principal payment; interest payments due within the period do not affect classification of debt by remaining maturity.
  - Recommended three‑way classification to derive debt statistics on original and remaining maturity bases:
    - Short‑term debt on an original maturity basis
    - Long‑term debt due for payment within one year or less
    - Long‑term debt due for payment in more than one year
  - For practical compilation, a proxy may be used: the undiscounted value of principal payments on long‑term public sector debt (original maturity basis) due to mature in one year or less; this proxy omits some interest payments but can be compiled using principles for projecting payments in a debt‑service schedule.

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_Source: https://www.imf.org/-/media/files/data/statistics/gfsm/global-consultations/proposed-recommendations-gfsm-2014-update-28-debt-valuation-issues.pdf_